Population Ageing and Health Expenditure: Sri Lanka 2001-2101

IHP Research Studies Series 2

Abstract: This study develops projections of the cost of the national health system for the period 2005ó2101, building on previous efforts. It utilises an actuarial-cost projection methodology, similar to the approach used in official projections prepared in developed economies, such as USA and UK. The model projects resource requirements for personal medical services as a function of changes in population size and structure, underlying changes in utilisation of medical services, productivity changes, and medical price inflation.

An intrinsic feature of the approach is that it does not focus on specific diseases. Nevertheless, by taking data from the disease-specific health accounts for the country, it was also possible to make some assessment of the implications of the changing age structure of spending for the disease composition of such expenditures.

During 2005-2050, the Sri Lanka population will increase only modestly by 10-15% to 20-23 million, before gradually decreasing in size during the remaining decades of the century. In this scenario, population ageing itself can be expected to add 0.4-0.9% of GDP to overall national health spending by 2050 and again by 2101, but this is likely to be only one part of the overall increases in expenditures, since other cost drivers will have much larger impacts.

Under the most likely scenarios, total health spending in Sri Lanka will reach 6-8% of GDP by the time its populationís stable age structure begins to stabilize. This level of spending is similar to that of the lower spending OECD economies today, such as Japan and Greece. The most significant cost drivers will be changes in individual demand for medical services, medical price inflation in the private sector, and productivity in the public sector. The model indicates that increasing public dominance in healthcare financing and delivery is likely to be a positive factor in controlling cost escalation, so maintaining a strong public presence in delivery will help largely mitigate cost increases.

Expenditures for non-communicable disease are already the major components of spending in Sri Lanka, and their share is likely to increase in the next few decades, in particular those of cardiovascular disease, diabetes mellitus and chronic respiratory disease. These trends will result in the overall levels (as share of GDP) and pattern of spending in Sri Lanka by 2050 being quite similar to that of OECD countries today.

The study underlines that Sri Lanka like these other developed countries does have significant options to be able to control the increase in health spending with ageing, and as is already known effective public policy can substantially mitigate future cost increases.